What Are Loopholes Some Debt Relief Companies Are Using Get Around The New FTC Regulations?
In a nutshell, the new rules are aimed at preventing debt relief companies from charging fees before rendering services and from making unsupported claims.
In response, unscrupulous debt consolidation companies have begun exploiting loopholes to take advantage of naive consumers who simply want debt relief. If you plan to consolidate debt, keep an eye open for these red flags.
According to the new FTC rules, debt relief companies may not charge fees if the sales pitch is performed in a phone call. To get around this regulation, some companies send notaries or sales representatives posing as “counselors” or “legal officials” to present their services in person. Then they ask for up-front “legal fees.”
To avoid falling victim to this deception, watch out for companies that insist on sending someone out to meet you. If you can’t get satisfactory introductory information over the phone without paying fees, then it’s probably not a good company to work with.
Another way around the ban on over-the-phone fees is to use online chat sessions or cell phone text messages. Reputable companies may use these methods as well, but scammers may try to collect fees from these interactions.
To keep yourself safe, always ask to talk over the phone instead. If a debt relief service refuses or tries to avoid phone consultations, stay away.
Since the FTC rules prohibit collecting fees during outbound sales calls, some companies contact consumers by phone to conduct a “survey” about debt consolidation. Anyone who participates will eventually be transferred to a “debt counselor” or law firm and will be asked to pay advance fees or “retainers.” Such fees may equal 10 percent of your total debt.
Be wary of any phone surveys that appear related to debt relief, consolidating debt, credit relief, or other financial services. Declining to participate will make sure that potential scammers cannot find a foothold.
Marketers know that consumers respond positively to seeing brand names on merchandise and so do shady debt relief companies. Instead of charging up-front fees for services, they may try to sell you “settlement kits” or other bundles of CDs, magazines and booklets containing “life-changing” information. Of course, the prices they charge are exorbitant.
Some companies move out of the U.S. to continue their questionable practices away from the FTC’s watchful eye.
When considering a debt relief company, investigate them thoroughly, including their history, reputation and location. An out-of-country address could indicate an unwillingness to follow FTC rules.
Ignoring FTC Rules
Many debt consolidation companies find it easier to simply pretend the FTC regulations don’t exist. They continue their abusive methods, confident that no consumer will report them.
Protect yourself by being aware of your rights as a consumer and of FTC regulations. If you suspect that a company is violating FTC rules, make note of the company name, contact information, date and time of your contact with them, and how the contact was initiated; report this information to the FTC immediately.